Social Security calculates your retirement benefit by averaging your 35 highest-earning years (adjusted for inflation), running that average through a three-tier percentage formula, and then adjusting the result for the age you file. For someone first eligible in 2026, the formula replaces 90 percent of the first $1,286 of average indexed monthly earnings, 32 percent of earnings between $1,286 and $7,749, and 15 percent of anything above $7,749.1Social Security Administration. Primary Insurance Amount The output is your Primary Insurance Amount, or PIA. What actually hits your bank account each month depends on when you claim.
You Have to Qualify Before Anything Is Calculated
The formula only applies to workers who have earned 40 credits, which usually takes at least 10 years of covered work.2Office of the Law Revision Counsel. 42 USC 414 – Insured Status for Purposes of Old-Age and Survivors Insurance Benefits In 2026 you earn one credit for every $1,890 in wages subject to Social Security tax, up to four per year, so $7,560 in a single year buys the maximum four credits.3Social Security Administration. Social Security Credits and Benefit Eligibility Credits come from FICA withholding if you are an employee or SECA payments if you are self-employed.4Social Security Administration. What Are FICA and SECA Taxes?
Step One: Your 35 Highest-Earning Years
Once you qualify, Social Security pulls your entire earnings history and picks the 35 years in which you earned the most. Only wages up to each year’s taxable maximum count. For 2026 that ceiling is $184,500, and anything above it is neither taxed for Social Security nor counted in the formula.5Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet
Worked fewer than 35 years? The missing slots get filled with zeros, and those zeros drag your average down.6Social Security Administration. Social Security Benefit Amounts Someone with 30 years of earnings carries five zero years into the calculation. That is why picking up even a modest-paying job late in your career can raise your future benefit: any positive number replaces a zero.
Step Two: Indexing Old Wages to Today’s Dollars
A dollar you earned in 1990 was worth more than a dollar today, so before averaging anything Social Security adjusts your historical wages upward. Each year’s earnings get multiplied by an indexing factor tied to growth in the national average wage.7Office of the Law Revision Counsel. 42 USC 415 – Computation of Primary Insurance Amount Indexing runs through the year you turn 60. Any earnings from age 60 onward are used at their actual, unindexed dollar amounts.8Social Security Administration. Computing Your Average Indexed Monthly Earnings
After indexing, the agency adds your 35 highest years of indexed earnings and divides by 420, the number of months in 35 years. The result is your Average Indexed Monthly Earnings, or AIME.6Social Security Administration. Social Security Benefit Amounts That single number is what feeds the benefit formula.
Step Three: Running AIME Through the Formula
The formula converts AIME to a monthly benefit using three fixed percentages and two dollar thresholds called bend points. For workers who turn 62 in 2026, the calculation is:
- 90 percent of the first $1,286 of AIME
- 32 percent of AIME between $1,286 and $7,749
- 15 percent of AIME above $7,749
Add the three pieces and you have your PIA, the monthly benefit at full retirement age. The bend points shift each year with national wage growth, so a worker turning 62 in a different year uses different thresholds even though the 90/32/15 percentages stay put.9Social Security Administration. Benefit Formula Bend Points
The tiered percentages are what make the formula progressive. A lower-wage worker sees 90 cents of every AIME dollar replaced up to the first bend point. A higher earner sees only 15 cents replaced on AIME above the second. The design intentionally replaces a larger share of pre-retirement income for people who earned less over their careers.
Step Four: Your Filing Age Adjusts the PIA
Your PIA is what you would receive if you file at full retirement age (FRA). You can file as early as 62 or as late as 70, and whichever month you pick permanently sets the size of the check.
Full Retirement Age
For anyone born in 1960 or later, FRA is 67.10Office of the Law Revision Counsel. 42 USC 416 – Additional Definitions For those born between 1955 and 1959, FRA falls somewhere between 66 and 2 months and 66 and 10 months. File exactly at your FRA and you get 100 percent of your PIA.
Claiming Before FRA
Each month you file before FRA cuts your benefit. For the first 36 months early, the reduction is 5/9 of one percent per month, or about 6.67 percent per year. For any earlier months beyond that, the cut drops to 5/12 of one percent per month, roughly 5 percent per year.11Social Security Administration. Benefit Reduction for Early Retirement With an FRA of 67, filing at 62 means 60 months early and a permanent 30 percent cut, leaving you with 70 percent of your PIA.
Delaying Past FRA
Wait past FRA and you earn delayed retirement credits worth 2/3 of one percent per month, or 8 percent per year, up to age 70.12Social Security Administration. Code of Federal Regulations 404.313 – Delayed Retirement Credits Someone with an FRA of 67 who files at 70 collects 124 percent of their PIA. Credits stop accruing at 70, so there is no reason to wait longer.
For reference, the highest possible retirement benefit in 2026 is $4,152 a month at full retirement age and $5,181 at age 70. Both figures assume the worker hit or exceeded the taxable maximum every year starting at 22.13Social Security Administration. What Is the Maximum Social Security Retirement Benefit Payable?
Cost-of-Living Adjustments
Starting the year you turn 62, your PIA receives an annual cost-of-living adjustment tied to inflation, whether you have filed yet or not.14Social Security Administration. Application of COLA to a Retirement Benefit The 2026 COLA is 2.8 percent.15Social Security Administration. Cost-of-Living Adjustment (COLA) Information Each year’s COLA is applied to your PIA first; then the early- or delayed-filing factor is applied to the adjusted PIA to produce your check. Delay filing to 70 and your eventual payment reflects both the delayed retirement credits and every COLA that stacked up in the meantime.
Working While Collecting
You can draw benefits and work at the same time, but until FRA the retirement earnings test can temporarily withhold part of your check. In 2026 the thresholds are:
- Under FRA for the whole year: $1 withheld for every $2 earned above $24,480.
- Reaching FRA during the year: $1 withheld for every $3 earned above $65,160, counting only the months before you hit FRA.
Once you reach FRA the earnings test disappears entirely.16Social Security Administration. Receiving Benefits While Working Withheld benefits are not gone forever. At FRA, Social Security recalculates your benefit to credit you for the months payments were held back.
Spousal Benefits Are a Separate Calculation
If you are married, you may be able to claim on your spouse’s record instead of your own. A spousal benefit maxes out at 50 percent of the worker’s PIA, available if the spouse files at their own FRA. Filing earlier reduces it: 25/36 of one percent per month for the first 36 months early, and 5/12 of one percent per month for any additional months.17Social Security Administration. Benefits for Spouses
If you are eligible for both your own retirement benefit and a spousal benefit, Social Security pays the higher of the two, not the sum. Divorced spouses can also collect on an ex’s record if the marriage lasted at least 10 years and the divorced spouse has not remarried.
Taxes on the Benefit You Receive
The formula produces a gross benefit; taxes may reduce what you keep. Up to 85 percent of your Social Security benefits can be subject to federal income tax, depending on “combined income,” defined as adjusted gross income plus tax-exempt interest plus half of your annual Social Security benefits. The taxable share kicks in above $25,000 combined income for a single filer or $32,000 for joint filers.18Social Security Administration. Must I Pay Taxes on Social Security Benefits? Most states do not tax Social Security benefits; as of 2025, nine still do, each with its own exemptions and thresholds.
One older wrinkle worth knowing: the Windfall Elimination Provision and Government Pension Offset, which used to reduce benefits for workers with pensions from non-covered government jobs, were repealed by the Social Security Fairness Act on January 5, 2025, effective for benefits payable after December 2023.19Social Security Administration. Social Security Fairness Act: Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) Neither reduces benefits paid from January 2024 onward.